Jobless Entrepreneurs Hire Themselves w/ Startup Businesses

Starting a business is a risky proposition at the best of times. Census figures show that three of 10 new businesses never reach the two-year mark, and half never turn 5 years old.

During a recession, it might seem almost foolhardy.

But as unemployment hovers at nearly 9 percent nationwide, more and more people are deciding that the recession is exactly the time to roll the dice and create their own jobs.

Leigh Mastrantonio of Granite Bay, Calif., had been contemplating the idea for some time. She returned to Northern California last fall from Las Vegas — where she had been working in the devastated construction market — and started her home-based management consulting firm, In2Focus.

"I found it was time to strike out on my own," she said. "If not now, when?"

In 2010, Americans created 565,000 businesses a month, according to the Kansas City-based Kauffman Foundation's annual Index of Entrepreneurial Activity, released in March. That was the highest startup rate in 15 years.

The foundation even coined a phrase for the phenomenon: "jobless entrepreneurship."

Hard-hit areas like California and Nevada are among the leaders. For every 100,000 adults in California, 470 started businesses last year, trailing only Georgia and Nevada, according to the report.

Sacramento's U.S. Small Business Administration offices are "getting a lot of interest from startups," said district director Jim O'Neal. "We're getting a phenomenal response. Out of necessity, a lot of people are looking to start businesses."

Lynn Armitage, owner of Rockin' Cupcake Cafe in Folsom, Calif., moved back to the Sacramento area in August 2009 after being laid off from an Orange County-based lifestyle magazine the previous October during the height of the recession.

For Armitage, receiving a layoff notice drove home the idea that she needed more control over her own destiny.

"You're dispensable. The motivating factor for me was that I was tired of making rich people richer," she said. "I decided I was going to be responsible for my own wealth creation."

She began crafting a business plan in October 2009, working with small-business counselors to polish the idea.

"I had to completely reinvent myself," Armitage said. "There weren't any cupcake shops in Folsom. The cupcake business was growing and I felt the time was right for Folsom to have a cupcake business."

Launching the venture proved to be a prime example of the challenges faced by first-time entrepreneurs.

The former editor and reporter had no commercial baking experience — a detail that she said scuttled a crucial SBA startup loan at the 11th hour.

Without a loan, Armitage dug into her savings and fine-tuned her recipes with help from professional bakers.

By the time she opened for business last September, two other cupcake bakeries had capitalized on the small-treat trend, opening storefronts of their own in Folsom.

After months of logging up to 90 hours per week in her new business, Armitage concedes that entrepreneurship is a stressful enterprise.

"I'm at a physical location, there's a lease I'm paying. It's scary. You hope you're making a product that people will come back for," she said.

But, she adds, Rockin' Cupcake Cafe has gained traction and is building a following — "I've completely achieved my vision."

Though typical in its origin, Armitage's newborn enterprise stands out in an important way — she's not the only employee.

"I didn't open to create jobs for other people, but I need them to make my business run." Now, she said, "I have created jobs for five or six people."

In its March index, the Kauffman Foundation noted that although startups were proliferating, they were not doing much to improve the jobless rate because so many were one-person operations.

Grant Easton, a Folsom adviser for volunteer business counselors SCORE, said that's to be expected in a recession.

"Typically, when you're starting a business, labor is one of the biggest risks you take. Their livelihood becomes your responsibility," he said.

And in a still-recovering economy, capital to help firms reinvest in their businesses and add employees remains out of reach for some startups, Easton said.

"It's tough. You've got to show that revenue stream," he said.

Mastrantonio, who started the In2Focus management consultancy, said business conditions in the region make it unlikely that she will be able to consider hiring an employee for at least a year.

Likewise, new business owner Jocelyn Munroe said she's likely to fly solo for some time.

Last year, software engineer Munroe founded e-Handoff — the firm develops software to help coordinate the care of critically ill patients — after a foray into print publishing in 2007 was waylaid by the recession.

When Munroe received a request from a physician at former employer University of California, Davis, in 2008 to rewrite some of its medical software, an idea and eventually a business were born of a familiar theme.

"They needed that whole system rewritten," she said. "I saw a niche that could be filled."

Like cupcake-maker Armitage, Munroe used her own cash to finance her venture ("It's tough to get money," she said).

Today, UC Davis is a main e-Handoff client, and Munroe contracts with a small cadre of programmers locally and overseas.

Munroe fully expects to grow her business and plans to hire in the future, she said, though she admits her anticipation is tempered by trepidation.

"I'm looking forward to — and dreading — the time when I have to pay wages," she said.